The Microeconomic Dimensions of the Eurozone Crisis and Why European Politics Cannot Solve Them

This paper argues there are two main problems holding back private sector employment creation in the stressed eurozone countries. First, there is a persisten competitiveness problem due to high labor costs relative to underlying productivity. Over the first ten years of the euro, wage developments relative to productivity diverged strongly across the eurozone. Second, widespread structural barriers make job creation in these coun- tries far more arduous than in many other advanced economies, and even more arduous than in some key emerging economies and formerly planned economies.